Investment Banking 2.0 Says “Hello World!?”

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Editor’s note:Jacob Mullins is the CEO of Exitround, a software-powered M&A marketplace for buyers and sellers of companies.

David Gelles wrote in the New York Times this weekend about how large tech corporations have been conducting more M&A deals with less input from traditional investment banks. Because of my company’s insight into buy and sell-side M&A interest, I wanted to provide some additional insight into how we see the M&A world changing.

But first, a little history to explain this evolution: Investment banking is a 300-year-old industry; the first transaction on record was the British East Indies Trading Company merging with its largest competitor in 1708. Since that day, investment banking has been entirely conducted under human power. These people are arbiters of information, connecting people within a particular sector of expertise or geography.

In an analog world, this worked, as finding the most strategically relevant business has been difficult. But we’re in the digital age. Businesses can achieve awareness and distribution far easier than in the past, enabling strategic acquirers to identify them earlier, without the need for human subject-matter experts.

In the past, buying stock on a physical trading floor in New York required an insider personal network to consummate the trade. In the past, finding love required a close-knit network of friends and family to help you find that ideal match. In the past, finding the perfect home required paging through newspapers and walking through open houses. Today, structured data and intelligent matching algorithms have solved each of these problems.

In the past, buying a company required people with subject-matter expertise to help identify the right M&A target and all the related data and information you needed to make the decision. Today, intelligent matching algorithms and proprietary data sets that span the globe enable buyers to identify the right target within minutes and connect within a matter of hours. The world of investment banking is a-changing.

On one end of the market, billion-dollar deals are starting to move in-house at large, highly resourced companies like Google and Facebook, as detailed by Gelles. Similarly, in the long tail of tech M&A, transactions under $100 million, where 88 percent of deals are done, the majority of corporate acquirers may not be as resourced up as the tech majors to go it alone, or hire an M&A adviser. However, because of software innovation in the space, enabling efficient prospecting at a highly disruptive cost, access to highly relevant M&A deals is becoming democratized to even corporate development departments of one.

There are 1,205 sell-side companies across 36 different countries in Exitround’s marketplace. On the buy side, there are over 1,450 individual companies, each looking for very specific strategic targets for M&A and corporate development expansion. This matrix of over 1,700,000 potential M&A connections is far beyond the limits of a human being’s ability to connect the relevant end-points.

Structured data, machine-learning algorithms and proprietary data are revolutionizing the way buyers and sellers of companies connect, not only more intelligently, but also more quickly. Today on Exitround, the average connection time between a buyer and a seller is 17.8 hours, compared with the weeks or months needed in a traditional M&A process. And finding that correct target comes by way of mathematical relevancy between the two companies, as opposed to coffees, lunches and sit-downs to “explore opportunities.”

All this isn’t to say that investment banking is dead. In fact, great bankers can be incredibly valuable to a process in negotiation, extracting as much value as possible for the client, deal structuring to minimize tax burdens and integration. But as with all other large industries, modernization and technology has finally reached the doorstep of Goldman Sachs.